The German steelmaker Krupp-Hoesch yesterday launched a hostile pounds 2.6bn bid for its larger rival Thyssen in a move which would create Europe's biggest steelmaker and spark off a fresh round of rationalisation and savage job-cutting.

The combined group would have sales of pounds 24bn and crude steel production of 18.1 million tonnes, making it the third- largest steelmaker in the world and eclipsing British Steel as Europe's number one producer.

But German steel unions fear that the takeover, masterminded by the controversial Krupp-Hoesch chairman, Gerhard Cromme, will merely prove the prelude to heavy job cuts with at least 10,000 of the 110,000-strong Thyssen workforce under threat.

"We will not just sit back and let this happen to us. Basically this is undiluted capitalism, pure Wild West methods," said Willy Siegerer, the deputy head of the Thyssen works council.

However, other steel makers gave a guarded welcome to news of the bid, suggesting it could ease the continuing problem of overcapacity that has held prices down and wrought so much damage on the European steel industry.

British Steel said: "Anything which could lead to a reduction in capacity in Europe would be fairly positive."

The UK Steel Association also gave cautious backing. Ian Rodgers, its director of policy, said: "Germany has been the one member state where there is a need for more rationalisation. If the intention of this bid is to help achieve rationalisation then that can only help the situation in Europe generally."

Steelmaking capacity within the European Union is 203 million tonnes compared with actual crude steel production last year of 148 million tonnes. An attempt by the European Commission four years ago to broker a big reduction in capacity in return for approving further state aid for the steel industry resulted in fewer than 10 million tonnes of capacity being removed.

Hostile bids are virtually unheard-of in Germany, making yesterday's move by Krupp-Hoesch, in which the Iranian government has a 25 per cent stake, highly unusual. However, it is consistent with Mr Cromme's track record. He created Krupp-Hoesch in 1991 by engineering Fried Krupp's hostile takeover of Hoesch with the loss of 20,000 jobs.

Union members from both companies surrounded Krupp-Hoesch's head office in Essen yesterday, shouting to Mr Cromme to address them. Mr Cromme, known in the industry as "the job-killer", hid behind bullet-proof glass and shouted back.

Reports of 30,000 job losses in the steel industry after a takeover of Thyssen were "pure panic-mongering," he told the protesters. There was, he assured them, no plan to close any plants, though the merged company would try to streamline production. The workers responded at one point by trying to storm the building and then pelting it with eggs.

Krupp-Hoesch is offering DM435 per share, a 25 per cent increase on the final price reached before shares in both companies were suspended in Frankfurt. Thyssen shares jumped to DM410 in unofficial trading after the announcement.

Krupp-Hoesch employs 66,000 people, and in the year to December reported a net profit of DM208m on sales of DM24bn. For the year to September Thyssen reported a net profit of DM350m on sales of DM38.7bn. It had a market value of just under DM12bn before the shares were suspended.

Krupp-Hoesch said the planned merger was in response to intense global competition. In order to stay competitive, German industry had to cut its costs of production, logistics and distribution.

"It is indispensable to achieve sufficient size in business in accordance with global standards," Krupp-Hoesch said in a statement.

Analysts say that synergies between the two companies in flat steel products and automotive pressings would make the merger attractive and could pave the way for the cost cuts needed to improve Germany's competitiveness against other European steel makers. A tonne of crude steel produced by Thyssen costs DM160, compared with DM155 in France and DM120 by British Steel.

For that reason, the bid is not likely to be opposed by the German authorities, but it will have to be approved by the European Commission.

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